Workers Look on Retirement Plans As Major Income
Source

December 18, 2003 (PLANSPONSOR.com) - Six in 10
American workers look on their defined contribution workplace
retirement savings programs as their largest source of
retirement income, a new survey found.

In fact, workers polled by Prudential Financial said
their employer retirement plans will end up contributing
twice as much to their retirement income as Social Security
– with retirement plans making up an average 54% of the
total and Social Security 26%.

Despite the fact that workers put so much importance on
employer-sponsored retirement plans, many workers aren’t
properly keeping track of their plan investments or
actively tending to their portfolio diversification. For
example, despite the Iraq war, the market downturn, and
historically low interest rates – all factors that could
potentially affect investing decisions – nearly seven in 10
employees haven’t touched their asset allocations in the
last 12 months, the survey found.

Making Investment Decisions

Generally, about half of the participants’ investment
decisions seem to be advice- or research-based. Some 30%
said they followed professional advisors’ recommendations,
and 21% said they conducted their own research.

But the remaining half of participants are apparently on
shakier ground when it comes to decisionmaking:

14% picked investments with the best performance
at the time

11% listened to their co-workers or friends’
suggestions

9% simply divided money among a number of
options

8% took their best guess.

Also, at a time when many plan sponsors are trying hard
to offer as many investment options as they can, the
Prudential survey found that participants tend to put their
plan assets in a small number of offerings

The majority (75%) said they use four or fewer
investment options or are unsure how many options they use.
Prudential said the finding suggests a potentially
significant underutilization of their investment
choices and raises questions about whether
participants’ portfolios are adequately diversified.
Particularly troubling, Prudential said, was that 27% use
only one to two investment options. Even among employees
age 50 to 64, the same amount (27%) use one to two
investment options. Some 19% can’t even remember how many
options they use.

Finally, almost six in 10 American workers do not feel
they are saving as much as they should. Workers were three
times more likely to increase (27%) their retirement plan
contributions to make up for stock market declines and
savings needs than to decrease contributions (9%). Since
only 31% report contributing the maximum allowed to company
plans, many other have the opportunity to also boost their
savings.
However, the majority (62%) still contributes the same
percentage of their salary as in prior years.

Prudential Financial’s Annual Retirement
Perceptions Study polled 1,000 Americans in July and
August 2003. The study’s participants are a national
representative random sample of full-time employed men
and women aged 21 to 64 who currently participate in
401(k), 403(b), 457, or other types of plans offered by
their employers.